Does Breaking a Lease Hurt Your Credit Score?

Credit scores have a range of 300 up to 850. According to the Fair Isaac Co., which developed the scoring rubric, the higher your score, the better your credit. A higher score helps you qualify for lower interest rates, more favorable loan terms and certain jobs. Breaking a lease may impact your credit score now and for years to come.

Significance

Your payment history can have a huge affect on your credit. It accounts for 35 percent of your FICO score and is the largest component in the calculation of that score. Rental payments are not generally reported to credit bureaus. When you break a lease, however, the management company or landlord may report that account if you have an unpaid balance. Delinquent accounts on your credit report lower your credit score. How much the score drops varies depending upon the other items present on the report.

Consequences

A past-due debt on your credit report is considered a negative item. The Fair Credit Reporting Act gives credit bureaus the right to include negative items on your report for up to seven years. Future lenders that pull your report will see the derogatory account and it may impact the lenders decision to extend credit to you. If you later pay the lease debt, your report shows that the debt has been paid but payment does not remove the account from the report.

Considerations

Management companies and landlords aren't generally in the business of collecting past due bills. Often collection agencies are hired to pursue the debtor for payment. The reasons to avoid the account going into collection are many. Collection agencies can place a collection account on your credit report. This will further damage your credit and these accounts can also remain on your report for up to seven years. Payment of a collection account does not remove it from your report either.

Warning

A collection agency views your credit report to ascertain information about you that assists them in collecting the debt, including discovering any assets that you may own. The agency may decide to sue you in civil court and obtain a judgment. A judgment allows the agency to place a lien on your property, seize money in your account and garnish your wages, depending upon the laws in your state. A judgment is a public record and displays as such on your credit report. By law, it can also stay on the report for up to seven years and, according to FICO, public records have an adverse affect on your credit score.